Many banks are wading slowly into the insurance game, but Salem Five Bank just cannonballed into a whole new pool – they’re now insuring airplanes.
You don’t hear much about banks who handle that type of business; that’s because there aren’t many. And as far as Salem Five knows, they’re the only such bank in New England.
Salem Five has done aviation financing since 1998, said Keith Graham, senior vice president, and it makes sense to offer insurance to those customers as well, he said. With the hiring of a new senior vice president of insurance this month, the bank will broker insurance for personal and corporate aircraft, passenger and cargo aircraft operators and parts manufacturing.
No one could give an exact number of aviation-insurance banks, except to indicate they were a rare specimen. A contact at the Aviation Insurance Association knew of one member that was a bank – out of about a thousand members total.
Still, Salem Five isn’t the first bank to try such a plan, and Graham acknowledged that many banks have tried and subsequently given up on the prospect. “There are those out there who have done it. It’s been attempted, but it’s one of those things you don’t see a lot of,” he said.
But Graham reasons the bank’s aviation finance has had a successful track record – he joined the bank in 2004 and now operates a portfolio of $185 million, he said. Graham also worked in aviation insurance underwriting. This move takes the bank’s experience in a highly specialized field and extends it.
Not For Everyone
Sovereign Bank, which also does aviation financing, contemplated moving into such insurance. However, the bank ultimately decided against it, said Joseph Dini, senior vice president and director of the bank’s aviation group.
The aviation market is really narrow, he said, and a solid chunk of banks’ financing customers come to them through referrals from insurance brokers. Those insurance brokers are unlikely to make referrals to a bank that is also a competitor.
“It may hurt them in the long run,” he said. The aviation business is a small club, and each segment of the business tends to compete with everyone else in that little niche, without stepping into others’ turf, he said. Referrals aren’t the majority of the business, but they aren’t easily ignored, either.
It’s certainly an interesting time for a bank to be making a move like that, Dini said – most banks are going back to basics right now and acting with extreme conservatism, instead of venturing out into new ground.
Dan Schrager, owner of the Bedford-based Aviation Insurance Agency and therefore now a competitor of Salem Five, agreed the timing was unexpected.
“It’s a pretty tight market right now. Rates have been pretty low … and given the current economic situation, a lot of aircraft are leaving the market,” he said. “It’s not the best time. I’ll be interested to see how they make out.”
A certain level of experience does go a long way with aviation insurance, Schrager said, because it’s a lot tougher to gauge risk for planes than, say, cars. The two types have a lot in common: brokers for both must lean on information like the driver’s – or pilot’s – experience level, what type of vehicle and where that vehicle will do most of its traveling.
But aviation, by its nature, involves a lot more unknown factors, Schrager said. You can go to five different auto agents and get close to the same answer every time, but aviation agents’ estimates swing much more.
“It’s much more art than science,” he said.â–
